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S&P launches Asia and developing market risk control indices

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Standard & Poor’s has launched 12 risk control indices covering Asia and developing markets.

Standard & Poor’s has launched 12 risk control indices covering Asia and developing markets.

Standard & Poor’s, which has already launched a range of developed market risk control indices, has extended its range to include the Asian, Latin American and BRIC markets.

The 12 new indices are: S&P Asia 50 Daily Risk Control five per cent; S&P Asia 50 Daily Risk Control ten per cent; S&P Asia 50 Daily Risk Control 15 per cent; S&P Latin America 40 Daily Risk Control five per cent; S&P Latin America 40 Daily Risk Control ten per cent; S&P Latin America 40 Daily Risk Control 15 per cent; S&P Southeast Asia 40 Daily Risk Control five per cent; S&P Southeast Asia 40 Daily Risk Control ten per cent; S&P Southeast Asia 40 Daily Risk Control 15 per cent; S&P BRIC 40 Daily Risk Control five per cent; S&P BRIC 40 Daily Risk Control ten per cent; and S&P BRIC 40 Daily Risk Control 15 per cent.
 
Standard & Poor’s risk control methodology aims is to control the level of risk of an index by establishing a specific volatility target and managing the risk relative to that target. In order to achieve this goal, the methodology uses an existing Standard & Poor’s index and a risk free rate. If the risk level reaches a threshold that is too high, the exposure to the index is decreased in order to maintain the target volatility. If the risk level is too low, then the index will employ leverage to maintain the targeted level of volatility.

Steve Goldin, vice president of strategy indices at Standard & Poor’s Index Services, says: "The integration of volatility control within index rules is a recent innovation in which S&P is market leader. Demand is being driven by investors allocating more to emerging markets which are now increasingly competing with the developed world combined with interest in risk control.

"The launch of this set of risk control indices is the latest step in a number of developments in the space and provides investors in these markets with increased transparency as well as a mechanism for controlling the level of volatility associated with an index."

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